Why Car Leasing is Scary, But Doesn’t Need To Be

The unfortunate reality of car leasing is that you often don’t know what you don’t know. On the other side, the dealer works with leases every day, and understands the situation inside and out. With this imbalance, you will rarely out-negotiate the dealer on a new car lease. You’d have better odds beating the house in Vegas. The terms and complexity of a car lease are, by design, meant to confuse you—while nudging up the dealership’s profit. It all starts when you catch a glimpse of a “lease special” that looks ideal for your budget and too good to pass up.

If It’s Too Good To Be True…

“In the business, it’s called the ad car,” said Chris Gross, executive vice-president of Concierge Services at Roadster.com. I met Chris at the start-up’s San Francisco office, where some of the best minds in online car and retail shopping are attempting to dismantle the most painful ordeal an American consumer faces: the car buying experience.

“You see an incredibly low monthly payment, and think wow, you can afford it,” he explained. “But when it comes time to close the deal, you discover that the out-of-pocket expense and monthly payments are a lot more than advertised.” Chris hates the deceit of it. It led him, as a freshly minted college graduate in the early 1990s, to do something somewhat bizarre and very geeky: he developed his own leasing model.

For nearly two decades, he was willing to accompany friends to dealerships to negotiate leases for them. Just for fun. “I got a mild amount of pleasure doing it, which is not at all what most people experience,” he admitted.

Chris ultimately turned this passion into a profession, and he now leads a team of Roadster Concierge brokers that represent consumers who select their next car off the company’s website. He’s a ninja at dissecting a lease special. We looked at a June 2015 lease special for an Asian luxury brand’s highly rated crossover SUV. To my untrained eyes, I see a somewhat attractive lease deal for $3,000 down, and $439 a month. Here’s what Chris sees:

“The advertisement says “$3,000 due at signing, but that actually means $3,000 plus $450 for registration and a document fee and then another $250 for tax on the down payment, so you thought you were writing a check for $3,000, but you are really writing a check for $3,700. Next, there is the advertised payment, which includes tax, so rather than $439/mo, you are paying $479/mo. Last, it turns out that the advertised car is the base model, and you want the more popular version with the tech package. You thought you could afford the advertised deal, but that somehow turned into writing a check for $4,500, and agreeing to nearly a $580/month payment.”

Chris then points to a similar ad for a European crossover, well regarded for its off-road capability. But the attractive lease deal is for the base front-wheel-drive version. In many cases, the specific model that has the great advertised lease deal doesn’t even exist. “It’s either not available, or not available in the color you want, or you want a similar one but with more things,” he said. So, because it’s a different car, there’s no way for a consumer to equate the advertised deal with what they are getting. “All you know is that you came in thinking it was $300 a month, and now it’s $450 a month,” Chris advises.

CHRIS’S ANATOMY OF A LEASE

The antidote is not magical or exciting; it’s math. If you know the factors and inputs going into your deal, and you understand the basics of a lease model, the situation becomes clear. You have to break down the terms one line at a time, and know how to avoid the many gotchas.

MSRP – Don’t Get Hung Up on the Sticker Price

No matter what the lease deal promises, you can and must negotiate the price of the car. But, that’s only a starting point, because the long list of other factors built into the lease deal can radically affect the payments you will make. Cars with exactly the same MSRP can lease for a $100 per month difference. And cars with a difference of as much as $15,000 in MSRP could lease for the exact same amount, due to higher or lower residual values or interest rates.

Money Factor – Beware the Marked Up Interest Rate

When you peruse your lease documentation, you’ll see something mysterious called the “rent” which is based on something commonly known as the “money factor.” It was specifically created to make it difficult for you to understand the interest rate on your deal. The money factor is not disclosed in advertisements. Worse yet, dealers are permitted to mark up the money factor. Even if you arm-wrestled the dealer to drop the price by $1,000 or more, you gave it all back on a bump in the money factor—without knowing it. Roadster does not work with dealerships that force a rate mark up. In addition, the Roadster “deal sheet” converts the money factor into an understandable APR interest rate, something dealers do not do.

Drive-Off Cost – There’s Nothing Special About Paying Nothing on the First Day

It’s enticing to view “sign and drive” deals as getting something for nothing, at least until the first bill arrives. But there’s no free lunch, especially in a dealership waiting lounge. First of all, these deals exclude registration and taxes, which means you’ll still need to fork over some cash before getting the keys. Moreover, if you pay nothing towards a lease’s core expense—depreciation of the car—that cost will invariably be carried over to the monthly payment. Pay now or pay later, but you will pay.

Mileage Limits – Don’t Bother To Negotiate Miles

The minute you start haggling over the lease’s mileage limits, the dealer’s got you. That’s because mileage and residual values are fixed. You can go to 10 dealers and they all use the exact same residual value. It’s a non-negotiable part of the lease. You’re better off doing an honest calculation of how many miles you expect to drive, and choose a lease that matches—usually 10,000, 12,000 or 15,000 miles per year. Also, you’re better off selecting a lower mile limit, and buying a few additional miles if you exceed the limit, rather than spending more money upfront on, say, 15,000 miles, but driving a lot less.

Transparent Purchase Prices – They Don’t Translate to Leases

All of those cool services on the web that show what others are paying for a car are talking about an outright purchase price. But that purchase price becomes less meaningful for a lease, especially as soon as the dealer starts dialing up the various lease terms, such as the money factor. Unless you have an easy-to-understand lease deal sheet in front of you, ideally with an experienced guide to explain what it means, price transparency is insufficient.

Extra Goodies – There’s No Such Thing as “We’re Throwing It In”

Here’s the common scenario: You get to the dealership and find your dream car, but lo and behold, it has a number of upscale options you didn’t really want. Those all drive up the price. The salesperson then whips out the classic line: “We know you don’t really want that stuff, so we’ll throw it in.” In other instances, they’ll offer floor mats or other small goodies, “just thrown in.” When you hear these lines, know that the money factor—and some combination of drive-off fee and monthly payments—just went up by at least a few dollars.

There’s Hope

If you’re like me, then you see these lease shenanigans as wrong—almost an affront to our American sense of a fair fight. Yet, there’s a countervailing American force: innovation. Roadster, with its roots in Silicon Valley, is trying to create a new model. It’s aiming to take a confusing and complex lease transaction for most people, deconstruct it, and reveal it in the clearest way. The key tool is the “deal sheet,” which shows all the factors and inputs of the lease. “Roadster is not holding anything back,” Chris told me. “We are not afraid of the numbers. We’re not afraid of explaining how the whole thing works.”

Roadster customers choose a specific vehicle (with specific engine, trim and tech options) from the website—not an idealized, fictional lease vehicle from an ad. Then, before Roadster receives a penny, or the consumer leaves the comfort of his or her home or office, everything is revealed: the drive-off amount, the monthly payment, sales tax, registration fees, money factor, mileage and residual value. Money factors are translated into interest rates. It’s presented in a matrix so that you can look for yourself, and make any adjustments in these inputs, to ensure it matches your expectations. No pressure. Ask a million questions. Sleep on it. Discuss with your family. Back away at any time. And if you need help, a Roadster concierge is always available to chat. Why would you lease a car any other way?

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Bradley Berman

Bradley Berman is a leading writer and researcher about cars, car connectivity and advanced automotive technology. He regularly contributes driving reviews and technology articles to The New York Times, Fortune, SAE, MIT Tech Review, and eBay, where he edits the eBay Motors blog. Bradley is frequently quoted in major media outlets, such as USA Today, National Public Radio, CBS News, Christian Science Monitor, CNBC and MarketWatch. He was the founder of HybridCars.com and PluginCars.com, two influential consumer information websites about green car purchase decisions.
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